Between 2006 and 2020, the world is expected to reach a peak in oil production where world demand for oil resources will be greater than the world's available oil supplies. Learn about oil and natural gas depletion and what that means for the global economy and our way of life in the United States.

Wednesday, March 22, 2006

Iran's Oil Weapons Part I: The Strait of Hormuz

"This notion that the United States is getting ready to attack Iran is simply ridiculous…And having said that, all options are on the table." ~ President Bush (2/23/05)

"We are reaching a critical phase but it is not a crisis situation. It is about confidence building and it is not about an imminent threat...everybody agrees that the only way to move forward is through diplomacy, through negotiation and there is still a window of opportunity for all concerned parties to find a way forward." ~ IAEA Director General Mohamed ElBaradei (2/2/06)

"The Iran regime must be made aware that if it continues down the path of international isolation, there will be tangible and painful consequences," ~ John Bolton, U.S. Ambassador to the United Nations (3/6/06)

"The United States has the power to cause harm and pain, but the United States is also susceptible to harm and pain. So if that is the path that the U.S. wishes to choose, let the ball roll." ~ Ali Asghar Soltanieh, a senior Iranian delegate to the IAEA (3/8/06)

As I’ve stated in previous posts, I believe the nuclear "crisis" in Iran is being manufactured and I also believe Iran has just as many weapons of mass destruction as Iraq did and therefore Iran is as much an “imminent” threat as Iraq was in 2003. So although it is a smaller country with a smaller military force, Iran appears to have two weapons in its arsenal that the U.S. has to think about before it pursues economic sanctions or air strikes against Iran.

The first oil weapon that Iran possesses is control over the Strait of Hormuz, the only available sea passage for many Persian Gulf states (Iraq, Iran, Saudi Arabia, Qatar, United Arab Emirates) for exporting oil to the Indian ocean.

The Strait of Hormuz (located in the map above -- south of Iran and north of the United Arab Emirates) is between the Persian Gulf and the Gulf of Oman and is 21 to 23 miles at its narrowest part. The strait has two 1 mile shipping channels separated by a 2 mile buffer zone. Approximately 16 million barrels of oil are shipped a day through the Strait of Hormuz a day (i.e. 20%-25% of the world’s oil production).

Mohammed-Nabi Rudaki, deputy chairman of the Iranian parliament's National Security and Foreign Policy Commission issued the following military threat in January 2006:

"If Europe does not act wisely with the Iranian nuclear portfolio and it is referred to the U.N. Security Council and economic or air travel restrictions are imposed unjustly, we have the power to halt oil supply to the last drop from the shores of the Persian Gulf via the Straits of Hormuz."

Ali Larijani, Iran’s Foreign Policy Chief, made the following statement earlier this month:

"If we are referred to the Security Council, problems might occur for others as well as us…We would not like to use our oil as a weapon. We would not like to make other countries suffer."

Although there is definitely a constant U.S. military presence in the Persian Gulf, there have been reports that Iran has accumulated substantial surface and underwater naval vessels, Chinese-supplied C-801 and C-802 anti-shipping missiles, ocean bottom tethered mines, coastal artillery, etc., to prevent a pre-emptive attack and to shut down the oil trade through these shipping channels.

Director of the Defense Intelligence Agency, Vice Admiral Lowell E. Jacoby reported to the U.S. Senate on 2/24/04:

“Iran’s Navy, the region’s most capable, can temporarily disrupt maritime traffic through the Strait of Hormuz using a layered force of KILO Class diesel submarines, ship and shore-based antiship cruise missiles and naval mines.”

To understand the magnitude of cutting off 20-25% of the world’s oil supply, just think about oil price increases recently with just talks of nuclear controversy between the U.S. and Iran, or the oil price increases due to instability in Nigeria and shutdown of oil production there, or oil price increases after the most recent Hurricane season when refining capacity became somewhat limited.

Given our current "peak" state of oil supply versus oil demand, oil prices would increase significantly if Iran simply stopped exporting its oil to the rest of the world, but shutting down the oil trade (even temporarily) in the Persian Gulf, would cause oil prices to more than significantly increase -- wreaking serious havoc on the U.S. and world economy and markets. The Iranians should not be understimated. President Bush is right with respect to Iran being a threat to our national security, but the threat is not "imminent" and "nuclear" in nature as he and his administration would like us to believe-- it's economic.